Fidelity Investments is overhauling what it
charges affluent clients for financial advice, one of the biggest-ever pricing
shake-ups for a firm that oversees hundreds of billions of dollars held by U.S.
investors.
The changes, which will begin in July, allow the wealth manager to make
its fees more transparent at a time when the industry is under pressure to do
so.
Money managers large
and small have made changes to their pricing structures in recent years because
of a Labor Department rule requiring brokers that work on retirement accounts
to put their customer’s interests ahead of their own, industry consultants say.
The Securities and Exchange Commission is preparing its own version of that
rule this year.
The cost of Fidelity
financial advice will be tied strictly to how much a client invests. That
approach will replace the current model that assigns prices according to a
varying mix of a customer’s investment preferences, degree of interaction with
Fidelity and overall assets.
The outcome for
investors will vary based on individual circumstances. Some new customers will
pay less than they would today and some will pay more, according to regulatory
filings that haven't been previously reported. Current Fidelity customers will
pay the same or less because the firm will grant waivers to keep existing
clients’ fees from rising.remote and not worth the expense.
The pressure on wealth managers to modify
their fee structures began with a change made by the Obama administration to
protect retirement savers from expensive or inappropriate investments. Most
brokers were generally free to push offerings that earned them the highest fees
even if cheaper alternatives would be better for the investor.
A new rule unveiled by the Labor Department in 2015 held brokers to a
“fiduciary” standard, meaning they must generally avoid conflicts. Previously,
such investment professionals were required to offer only “suitable” guidance,
a less-rigorous standard.
The future of the Labor Department rule is
uncertain. Last month, a federal appeals court struck it down, saying the Labor
Department overreached. However, an earlier appeals court decision took an
opposite tack. President Donald Trump last year ordered the Labor Department to
conduct a new economic analysis of the retirement-saving rule, with an eye
toward repeal or revision.
Even if the rule
doesn’t survive, the changes in fee structures it spurred across the
financial-advice industry are unlikely to be reversed, consultants say. Any
changes, Fidelity has said in a letter to SEC Chairman Jay Clayton, should
focus on disclosures that explain a broker’s conflicts.
A Fidelity spokesman
said the price changes are being made because of customer demand. They will
lead to a “unified offering and a single fee schedule,” the spokesman said.
“Instead of making the customer choose which product they may be best suited
for, we’re now welcoming them to having this personalized discussion” about
their wealth-management needs, he said.
Financial advice
ranges from simple recommendations to buy funds based on a client’s goals and
risk tolerance to tax optimization, long-term wealth planning and regular
check-ins. The average fee for this advice across the industry was 1.3% for
customers with $100,000 and 1.08% for clients with $750,000 in assets,
according to information provided by advisers to research and consulting firm
Cerulli Associates.
Fidelity
isn’t the first to revamp its wealth-management fees. In late 2016, Bank of AmericaCorp.’s Merrill
Lynch unit made several changes to its investment advisory program that
included revamping account statements to more clearly display what customers
pay. That unit also has cut fees for clients
with smaller balances.
The changes being
made by Fidelity, founded in 1946 by the Johnson family, are significant
because of its size and influence. It ended 2017 with $6.8 trillion in assets
under administration and $324.8 billion in customer assets within its retail
wealth-management business. Its business lines include asset management,
brokerage, technology services, wealth management and workplace benefits.
In some cases, new Fidelity customers will pay less than they would today. For
example, new customers with less than $200,000 in assets who want portfolios
comprised entirely of Fidelity funds will pay a lower gross advisory fee—1.5%—after
the change than the 1.7% they would pay today. So a customer with $100,000 in
assets investing that way will now pay a gross $1,500 annually for advice, or
$200 less a year than he or she would have before the change.
In other cases, new
customers will pay more. New customers with $1 million that invested in premade
portfolios that included Fidelity and non-Fidelity funds would have paid a
blended gross fee of 1.05%, but under the new system would pay 1.175%.
The net advisory fee
customers pay differs depending on credits granted by Fidelity. Those can
depend on fund-management and servicing fees associated with their investments,
among other factors.
The new fees at
Fidelity are part of a broader repricing within its wealth-management unit. For
example, it has also cut the costs of its robo-advice service, Fidelity Go.
Such digital-advice services offer clients premade portfolios of funds and
serve as a way to bring in customers who could increase assets over time.
The average customer
of that service at Fidelity is in his or her early 40s, while the average
customer with a managed account is about 62.
The firm is this
month moving Fidelity Go customers into no-fee funds so that they pay only a
flat 0.35% annual fee for the service. They previously paid both that
management and underlying fund fees.
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Journal.